The biggest difference for having a limited liability company is the administrative work it entails. You may also see differences in financial arrangements depending on the leverage ratio of your investments. Loan conditions and offered interest rates often differ for companies and private persons.
Impact to taxation is already evident at the founding of the company if existing property assets are transferred to the new company. If the apartments are sold to the company, there are tax implications in the form of transfer tax. Transfer tax is principally also charged when the apartments are transferred as assets in kind. An exception to this is a change in the form of company where a sole proprietor or a self-employed person transfers their business’ assets and debts to a limited liability company. Assets in kind refers to a situation where an owner investment is made not with money but with property owned. In addition, the transfer may have tax implications in the form of capital gains tax the transferring investor is liable for.
Real estate investors are particularly interested in rental income deductibles. The mechanism is the same for private persons and limited companies. Any expenditures and renovation and financing costs may be deducted from rental income in both cases.
The biggest difference in investing as a private person versus a limited liability company is in the models used to tax the profit. As a private person, you pay a capital income tax which in 2023 was 30 percent for income of up to 30,000 euros and 34 percent for any income exceeding said 30,000 euros.
On the other hand, a company pays a corporate tax which in 2023 was 20 percent of the company’s taxable income. Profit after tax becomes capital accumulation. The accumulated capital can be used to expand the business or distributed to shareholders.
Unlisted companies pay a capital tax on distributed dividends. For unlisted companies, 25% of dividends of up to 150,000 euros are taxed at capital tax rate, provided that dividend doesn’t exceed 8% of the mathematical value of the shares. For any dividends exceeding said 8% limit, 75% of the exceeding amount is taxed as earned income.
So, when considering your options in terms of taxation, you should take both corporate tax and capital tax into consideration. The accumulating annual taxation is affected by the mathematical value of company shares (company net assets divided by the number of shares) and the value of distributed dividends over the course of the tax year.